Movie Gallery to shut down with bankruptcy

Once proud Movie Gallery -- a heavyweight in the video rental world and a sizzling stock market investment that got its start in Alabama -- has let the final credits roll.

View full sizeIn bankruptcy twice since its glory days, the company finally called it quits Monday, saying it plans to shut the doors forever at all locations on a date to be determined.

"It is in the best interests of the company and other parties to wind down the business," Movie Gallery said in papers filed with the U.S. Bankruptcy Court in Virginia.

The company has operated about 40 stores in the Birmingham metro area in the recent year or so, according to the 2010 BellSouth Yellow Pages. Many have since closed. Attempts to reach the company for additional details about its store roster were unsuccessful. A recorded message said Movie Gallery isn't accepting inquiries from news outlets.

At its height in 2005, the company operated 176 stores in Alabama, according to its annual report to investors from that year.

It has been a rough slog for Movie Gallery, now based in Portland, Ore. On Feb. 2, the company founded in Dothan during the 1980s filed for bankruptcy protection for the second time since 2007, while continuing to operate almost 2,000 stores nationwide. The company's Chapter 11 documents listed debts of $500 million to $1 billion, and assets of as much as $50 million.

"They fought the good fight against technology and held on longer than most," said Robert Robicheaux, a retailing professor at the University of Alabama at Birmingham.

It has been a stunning fall. The company rode the 1990s home-entertainment wave to a cascade of profits back when retail rental shops were the preferred mode of grabbing a movie on the way back from work, or for a weekend evening at home. When the company first sold stock to the public in 1994 at $14 a share, sales were $38 million a year, from 324 stores in nine states.

By 2003, the company had grown into a monster after buying up dozens of mom-and-pop shops and small rival chains. Sales were almost $700 million a year, cash flow generated from a coast-to-coast fleet of 2,200 stores. Two years later, shares would reach their all-time high of $33.43 -- a sparkling return that more than doubled the investment of an original IPO stockholder.

But time and trend were working against the company. Online vendors such as Netflix were starting to offer unlimited movies through the mail for a flat monthly rate, with no late fees.

And mass-market retailers such as Wal-Mart Stores Inc. were selling recent video releases for little more than Movie Gallery was willing to rent them. Then the company went heavily into debt in 2005, to the tune of $1.25 billion, buying west coast rival Hollywood Entertainment on borrowed money just as industry trends were changing.

Profits disappeared from the income statement in 2005, never to return. The stock began a long, irreversible fall. Shares were removed from stock market trading in 2008 after falling below a penny per share.

Retailing professor Robicheaux said the company was able to survive as long as it did by appealing to "late adopters" of more modern technology, such watching filmed entertainment on a computer, or ordering videos via the Internet for home delivery.

"For people age 24 to 40, there are just so many more flexible and convenient options than going into a store," he said. "In retrospect, going into a store for video rental seems kind of quaint."